Shares have not participated in the recent solar rally, primarily due to concerns over Q2 earnings miss and low upside risk to 2010 guide. Although we do not anticipate any upside to Q2 results, checks indicate 2H upside from solar/SunEd segments exists. Positive '11 earnings impact (~$0.55-$0.60) from in-house wafering is also not completely baked into street estimates in Barcap's view. Shares are trading at a discount to poly peers (OCI, GCL). With ~$3/share cash on hand, solid progress on SunEd/solar segments and robust outlook for semis segment, risk reward now appears attractive (pot'l upside to $16, downside to $10, representing risk-reward of 3:1), in firm's view.

1) Robust Fundamentals: Demand from both semis and solar segments remains very strong. Checks indicate that MEMC is completely sold out for the rest of the year and is currently trying to procure poly in the spot market to meet excess demand. One poly competitor told Barcap that "demand is limitless for MEMC" - obviously, most poly suppliers are focused on meeting excess demand from existing customers and as such they do not see significant upside to Q2 results (from extra poly purchases in the spot market).

That said, they believe poly/wafer pricing is looking good and despite higher tolling costs, MEMC is likely able to maintain margins. Checks with several solar customers, for instance, indicate that wafer prices were up sequentially in Q2 and could likely remain flat or even increase sequentially in Q3/Q4. Fundamentals within semis segment also appear to be relatively robust and they expect pricing to be up mid-high single digit percentage points sequentially in Q3/Q4.

None of the major semis competitors are adding capacity and as such they expect pricing outlook to remain relatively stable, even into 2011. Finally, fundamentals for SunEd business appear relatively strong in markets such as Italy and the US. Barcap's current model assumes $5.50/W system ASP for SunEd in 2H10. Greater mix of Italian systems business could lead to pricing/volume upside, in their view....MORE

Notablecalls: I looks like WFR may be setting up for a bit of a short squeeze. Analysts are downplaying the potential impact of the Q2 miss while short interest stands at 5-year highs.

I also like Barcap's comments regarding 'In-house Wafering' which could add ~$0.50-0.60 EPS. Put a modest 10x multiple on that and you have $5-6 bucks of upside. Not bad for a $10-11 stock, eh.